Technological obsolescence is one of the greatest threats facing the 360. Sony's Blu-Ray games are already using a lot more capacity on a disk than Microsoft's games are. That means Sony's games could eventually surpass Microsoft's in depth. Even if that never comes to pass in the 360's five-year lifespan, Sony is trying mightily to convince gamers that the 360 is yesterday's technology. Kaz Hirai, CEO of Sony Computer Entertainment America, contends that the PS3 is "future proofed" for the next 10 years, thanks to Blu-Ray and the Cell processor.
Nintendo remains the biggest wild card. It has executed better on its launch than either Microsoft or Sony did. By focusing on easily manufacturable low-end technology, Nintendo was able to ensure a huge supply of Wiis for its first holiday season. Cole believes Nintendo will be able to hit its target of four million units worldwide by the end of 2006. And Nintendo has a fighting chance to expand the market to non-gamers, says Robin Kaminsky, head of North American publishing for Activision.
Shane Kim, head of Microsoft Game Studios, says Microsoft is also trying to expand the market to non-gamers. That was why Microsoft's Rare studio worked for years on Viva Piñata, a kid-oriented game with cute piñata animals. However, Nintendo is certain to offer many more titles that appeal to non-gamers. While Microsoft seems obsessed with taking away gamers from Sony, Nintendo may have the more elevated plan of expanding the market for games. If that strategy works, it may pull ahead of its rivals.
But Nintendo's newfound competitiveness could also help Microsoft. Moore has acknowledged the value of the "Wii60" psychology among gamers who realize that they could buy two consoles for the price of the PS3.
In some sense, the battle for the next-generation consoles seems harder to call than ever. But looking at Microsoft's challenges in 2006 and comparing them to the challenges of launching the Xbox in 2001, it's clear the company has come a long way. There are still big elements of Microsoft's strategy that have yet to play out. Halo 3 is expected to launch next year, and Microsoft will debut its "Live Anywhere" communications system to leverage the PC, 360 and cell phones. With such prospects to come, neutral parties like Electronic Arts continue to throw considerable support behind the 360, even as they ramp up support for the other consoles.
"By being No. 2, we got the chance to play again," said Gates. "Our credibility is strong with developers and publishers. Now with the Xbox 360, we're playing with different rules based on what we've learned."